The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related noted included in our Annual Report on Form 10-K for the year ended December 31, 2008. The following discussion includes forward-looking statements. Please see "Risk Factors" in Item 1A of this Report for important information to consider when evaluating these statements.

Overview

We provide software and services designed to make technology work. We currently operate our business in two segments, the Consumer Business and the Enterprise Business.

On April 6, 2009, we announced that we signed an Asset Purchase Agreement with Consona to sell the Company's Enterprise Business to Consona (the "Asset Sale"). Pursuant to the terms of the Asset Purchase Agreement, Consona has agreed to acquire the assets of the Enterprise Business in exchange for a $20 million cash consideration, subject to certain adjustments upon the closing of the sale of the Enterprise Business. The Asset Purchase Agreement must be approved by a majority of our stockholders, and may be terminated by either us or Consona if the closing of the transaction has not occurred by August 31, 2009 or upon the occurrence of certain customary events as set forth in the Asset Purchase Agreement.

In the fourth quarter of 2008 and the first and second quarters of 2009, we implemented certain reductions in workforce and closed certain facilities worldwide in order to reduce our ongoing cost structure. The recorded restructuring charge for the fourth quarter of 2008 was $1.9 million, of which $690,000 was related to the Enterprise segment, $670,000 was related to the Consumer segment and $525,000 was related to the Corporate segment. For the first quarter of 2009, the restructuring charge was $896,000, which was primarily related to the Enterprise segment. For the second quarter of 2009, we expect to record a restructuring charge of approximately $400,000, primarily related to the Consumer segment. For further information, see Notes 6 and 7 of our Notes to Condensed Consolidated Financial Statements.

Consumer

Our Consumer segment is a technology-enabled services business that provides consumers with assistance in resolving technology problems. We deliver our services remotely, using work-from-home agents who use technology to access customers' desktops to deliver our services. We offer both incident-based and subscription services.

Our Consumer Business has grown substantially since its inception in 2007. The growth was driven primarily by the national rollout of our services to all North American stores of one of our retail channel partners as well as by growth of other partner relationships. We have increased the number of technical support agents to meet the increased demand for our services. Including our technical support agents, our Consumer Business now comprises more than two-thirds of our employees.

The growth experienced by our Consumer Business will require increasing investment of our senior management's time and focus as we seek to increase revenue, diversify revenue sources, and achieve profitability in that business. Upon the closing of the proposed sale of our Enterprise Business to Consona, we will continue to pursue our Consumer Business growth strategy of providing services via retail and other channels and directly to the consumer through our website, support.com.

Our goals in the Consumer segment are to continue to grow and diversify revenue and improve gross margin. To achieve growth, our plan is to enhance our revenue streams and expand our service offerings. With respect to revenue streams, we are seeking to expand existing programs, launch additional new programs,

add new partners and grow our direct support.com business. We aim to diversify revenue by developing partnerships with additional companies and growing our direct business. With respect to service offerings, we recently introduced subscription-based offerings at support.com and began offering them through channel partners in early 2009. We have also introduced new services such as online backup and data migration, and plan to continue to expand our offerings to include support for additional devices and platforms.

We aim to improve gross margin by optimizing our service delivery operations through increased automation and process improvement. We are focusing a substantial part of our research and development activities on technology that increases the efficiency and improves the effectiveness of our technical support agents. To date, these activities have been focused on our Solutions Toolkit, an integrated set of tools for delivery of premium technology services, and we have an extensive roadmap for these technologies. In addition, we have introduced significant process improvements into our service delivery operations and augmented our call center management team to drive efficiency gains and productivity increases, and we expect to continue these efforts. We also expect improved forecasting and revenue scale to enable resource optimization. To further enhance service delivery efficiency, we are exploring a number of means of optimizing labor costs.

To achieve our goal of making the Consumer Business profitable, we will seek to reduce certain costs, including aligning our infrastructure and overhead to match the smaller size of our company after the completion of the sale of the Enterprise Business. In the second quarter of 2009, we announced a restructuring plan of our headquarters staff for the Consumer Business, as described in Note
7. We also expect to review our compensation structure. Because we plan to manage the Consumer Business toward profitability while our business is in growth mode, we will consider balancing our compensation strategy in favor of more long-term equity incentive compensation rather than short-term cash incentives as well as other compensation options. Our board of directors and management will work closely with our advisers to define and implement specific compensation strategies.

We expect to continue to explore both organic and inorganic growth opportunities in our Consumer Business. In particular, we may acquire complementary companies that can contribute to the strategic, operational and financial performance of our Consumer Business. In the event that we are unable to identify suitable acquisition targets that are appropriately valued, we will evaluate other possible uses of our available cash consistent with the best interests of our stockholders.

Enterprise

Our Enterprise segment consists of our traditional business in which we license technical support software to digital service providers (telecommunications and cable companies) and corporate IT departments and IT outsourcers. We have experienced a trend of decreasing annual license revenue in this business over the last four years due to closing fewer large licensing transactions with customers. In 2009, we forecast year-over-year reductions in overall revenue for our Enterprise Business.

After careful consideration, our Board of Directors has unanimously adopted and approved the sale of the Enterprise Business and recommended to our stockholders that the Asset Purchase Agreement be approved.

Should the Asset Purchase Agreement not be approved by a majority of our stockholders, we would continue operating the Enterprise Business independently. In operating this business, we would continue to focus on maintaining segment operating profitability on a non-GAAP basis, which excludes common corporate expenses, stock-based compensation expenses, restructuring charges and amortization of intangible assets ("Segment Operating Profitability") and introducing new products to sustain and grow revenue. In order to maintain Segment Operating Profitability, we would continue to carefully manage the costs in this business to ensure our spending is appropriate for the macroeconomic environment. If the sale of the Enterprise Business closes in the second quarter of 2009 as we expect, we would operate in only one operating segment, Consumer, in future periods.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States, we make assumptions, judgments and estimates that can have a significant impact on our net revenue, and operating results, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates

involved in the accounting for revenue recognition, allowance for doubtful accounts, business combinations - purchase accounting, fair value measurements, fair value estimates, accounting for income taxes, accounting for goodwill and other intangible assets, and stock-based compensation have the greatest potential impact on our condensed consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated with these policies. For further information on the critical accounting policies, see Note 1 of our Notes to Condensed Consolidated Financial Statements.

Revenue Recognition

In our Consumer segment, revenue is derived primarily from fees for technology support services. These services include those that are delivered on a one-time basis ("incident-based" services) as well as those that are delivered over time ("subscription" services). We provide these services through channel partners and directly to consumers. Firms that serve as channel partners for us are generally invoiced monthly for services delivered or sold during that period. Fees from transactions directly with consumers are generally paid with a credit card at the time of delivery. For incident-based services, revenue is recognized during the period in which the services are delivered. For subscription-based services, revenue is recognized ratably over the subscription period. Our direct-to-consumer channel generally provides a five-day warranty period during which refunds may be granted. The warranty period varies across channels, and in some channels our partner bears the cost of refunds. For our direct-to-consumer sales, we recognize revenue net of refunds during each period. We also license certain of our Consumer software products to channel partners who use our software to provide services to their customers. Channel partners are charged a per-use fee for the software and revenue is recognized in the period usage occurs.

In our Enterprise segment, we recognize revenue in accordance with generally accepted accounting principles that have been prescribed for the software industry. Our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is based on complex rules which require us to make judgments. In applying our revenue recognition policy we must determine which portions of our revenue are recognized currently and which portions must be deferred and recognized in subsequent periods. We make judgments as to whether future services are essential to the functionality of other elements of the software arrangement. We do not record revenue on sales transactions when the collection of cash is in doubt at the time of sale. Rather, revenue is recognized from these transactions as cash is collected. The determination of collectability requires significant judgment.

Allowances for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically provided for, provisions are recorded at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current payment trends. If the estimated data we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected.

Business Combinations - Purchase Accounting

Under the purchase method of accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. We record the excess of purchase price over the aggregate fair values as goodwill. We engage third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed. These valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. We have estimated the economic lives of certain acquired assets and these live are used to calculate depreciation and amortization expenses. We have estimated the future cash flows to be derived from such assets, and these estimates are used to determine the fair value of the assets. If our estimates of the economic lives or the future cash flows change, depreciation or amortization expenses could be accelerated and the value of our intangible assets could be impaired.

Fair Value Measurements

Effective January 1, 2008, SupportSoft adopted SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most

advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

• Level 1 - Quoted prices in active markets for identical assets or liabilities. Therefore, determining fair value for Level 1 instruments generally does not require significant management judgment, and the estimation is not difficult.

• Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

Our Level 3 assets consist of auction-rate debt securities with various state student loan authorities and the auction-rate securities put option. Beginning in February 2008, all auctions for these securities have failed. Based on the continued failure of these auctions and the underlying maturities of the securities, we have classified auction-rate securities as long-term assets on our balance sheet. The fair value of the auction-rate securities as of March 31, 2009 was estimated by management.

Fair Value Estimates

In November, 2008, we signed a Rights Agreement with UBS concerning the disposition of its Auction-Rate Securities (ARS). The UBS agreement gives us the right to sell our ARS holdings back to UBS, at par value, beginning June 30, 2010 through July 2, 2012. Prior to June 30, 2010, UBS and we have the right to sell our ARS holdings at any time; should UBS sell the holdings, UBS must return par value to us. The rights represent a freestanding financial instrument for accounting purposes. As noted above, we elected to value this "put" option at fair value as allowed under SFAS No. 159. We recognized the value of the repurchase right as an asset with the corresponding gain recorded in earnings. Fair value was determined using a "with and without" approach, based on a discounted cash flow valuation comparing the value of the auction-rate securities with the put option and without it. We took into account the same factors as those used to value the auction-rate securities noted above. The value of the rights offer was recorded in interest income and expense, net. As of March 31, 2009, the value of the rights offer was $5.0 million, which substantially offset the realized loss recorded on the related auction-rate securities in our condensed statement of operations. In any period in which a change in value of our auction-rate securities put option does not fully offset a change in value of our auction-rate securities from UBS, or vice versa, our condensed consolidated statement of operations will be impacted.

Our action-rate securities continue to be presented as long-term investments on our balance sheet, while the value of the rights agreement is presented separately as auction-rate securities put option. At March 31, 2009, the value of the auction-rate securities and the auction-rate securities put option was 20.2% of our total assets. This ARS put option is not a traditional put option in that it is non-transferable, non-assignable, and not available for trade in any financial market.

We have made certain estimates in calculating the fair value of the ARS put option for our UBS securities, including estimates for the weighted average remaining term (WART) of the underlying securities in which actual WART from servicing reports was unavailable, the expected return, and the discount rate. In future periods, if our estimates for these assumptions change, the fair value estimate of our ARS holdings as well as the fair value estimate of our ARS put option would change, which would impact our operating results.

Accounting for Income Taxes

We are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves management's estimation of our actual current tax exposures together with an assessment of temporary differences determined based on the difference between the financial statement and tax basis of certain items. These differences result in net deferred tax assets and liabilities, which are included within our condensed consolidated

balance sheets. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We currently have provided a full valuation allowance on our U.S deferred tax assets and a full or partial valuation allowance on certain foreign deferred tax assets.

Accounting for Goodwill and Other Intangible Assets

At March 31, 2009, our recorded goodwill was $12.6 million. We assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss would be recognized if the fair value of the reporting unit is less than the carrying value of the reporting unit's net assets on the date of the evaluation. The estimate of cash flow is based upon, among other things, certain assumptions about expected future operating performance and an appropriate discount rate determined by our management. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating performance. If we made different estimates, material differences may result in write-downs of net long-lived and intangible assets, which would be reflected by charges to our operating results for any period presented. Furthermore, we evaluate cash flows at the lowest operating segment level. If the number of reporting segments increases in the future, as it has in 2008, this may make impairment more probable than it would be with fewer reporting segments.

At March 31, 2009, our intangible assets were $374,000. We assess the impairment of finite lived identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognized when the sum of the future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value.

Stock-based compensation

We account for stock-based compensation in accordance with the provisions of SFAS 123R. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award. We estimate the fair value of stock-based awards on the grant date using the Black-Scholes-Merton option-pricing model. Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life. If any of these assumptions used in the option-pricing models changes significantly, stock-based compensation may differ materially in the future from that record.

RESULTS OF OPERATIONS

The following table sets forth the results of operations for the three months
ended March 31, 2009 and 2008 expressed as a percentage of total revenue.



                                                     Three Months Ended
                                                          March 31,
                                                    2009            2008
        Revenue:
        License                                          8 %            26 %
        Maintenance                                     35              34
        Services                                        23              34
        Consumer                                        34               6

        Total revenue                                  100             100

        Costs and expenses:
        Cost of license                                  1              -
        Cost of maintenance                              4               5
        Cost of services                                24              32
        Cost of consumer                                42              11
        Amortization of intangible assets               -               -
        Research and development                        18              19
        Sales and marketing                             50              55
        General and administrative                      27              20

        Total costs and expenses                       166             142

        Loss from operations                           (66 )           (42 )
        Interest income (expense) and other, net        (3 )            12

        Loss before income taxes                       (69 )           (30 )
        Provision for income taxes                      (1 )            (1 )

        Net loss                                       (70 )%          (31 )%

Three Months Ended March 31, 2009 and 2008

REVENUE

Our total revenue for the three months ended March 31, 2009 was $10.6
million. Our total revenue decreased in the first quarter of 2009 by $1.1
million, or 9% from the same quarter of 2008 as a result of decreases in our
Enterprise segment.



                                             Three Months
                                                 Ended
                                               March 31,           $           %
       In thousands, except percentages     2009       2008      Change      Change
       License                            $    807   $  2,974   $ (2,167 )      (73 )%
       Maintenance                           3,668      4,002       (334 )       (8 )%
       Services                              2,443      3,949     (1,506 )      (38 )%
       Consumer                              3,614        703      2,911        414 %

       Total revenue                      $ 10,532   $ 11,628   $ (1,096 )       (9 )%

Consumer Segment

Revenue from our Consumer segment was $3.6 million and $0.7 million for the three months ended March 31, 2009 and 2008, respectively. Consumer revenue was comprised primarily of fees for technology support services provided through channel partners and, to a lesser extent, directly to consumers through support.com. We also license certain of our consumer software products to partners on a per-use basis. Our Consumer Business was in its early stages of revenue generation in the first quarter of 2008 and revenues in the three month period ended March 31, 2008 were significantly smaller than in the same period in 2009. The increase in consumer revenue from 2008 to 2009 was due to increased services demand from consumer partners, primarily from one customer. It is difficult to predict the timing of revenue from the Consumer segment because it is dependent on the signing of new partners and from the pilot to the full scale programs for those partners. Upon the conclusion of the sale of our Enterprise Business, we expect this customer to account for a greater percentage of total company revenue.

Enterprise Segment

Revenue from our Enterprise segment was $6.9 million and $10.9 million for the three months ended March 31, 2009 and 2008, respectively. Within this segment license revenue was $807,000, maintenance revenue was $3.7 million and services revenue was $2.4 million for the three months ended March 31, 2009. For the three months ended March 31, 2008, license revenue was $3.0 million, maintenance revenue was $4.0 million and services revenue was $3.9 million.

License revenue. License revenue is comprised of fees for perpetual and term licenses of our software. Perpetual license revenue is recognized using the residual method described in SOP 98-9 for arrangements in which licenses are sold with multiple elements. We allocate revenues on these licenses based upon the fair value of each undelivered element including undelivered maintenance, consulting and training. The determination of fair value is based upon vendor specific objective evidence (VSOE). VSOE for maintenance is based upon separate renewals of maintenance from customers. VSOE for consulting or training is based . . .